Tuesday, October 13, 2009

One of the challenges of modern credit risk management is the application of robust analytical techniques against an ever-changing background of economic conditions, technological advances, regulatory changes and customer demands. The current economic climate is especially demanding with the ‘credit crunch’; increasing costs of essential items and falling house prices are putting a number of households under significant financial pressure. Annual bad debt losses run into billions of pounds, and recent events have put the results of most institutions under an even more intense spotlight. Increases in funding costs and regulatory pressure in areas such as fees and insurance have put further pressure on profit margins. The combination of these two factors makes the credit risk manager’s job of lending to the right customers profitably even more crucial. Given the uncertainty, many institutions have been comfortable to restrict lending over the past year; however, the pressure will soon resume to grow lending and deliver the results shareholders expect. This article looks at the challenges currently faced by senior credit risk professionals and the role more effective data use can play in all aspects of the credit life cycle.